Level Global, SAC Fund Managers Ruled Co-Conspirators

By Patricia Hurtado and Saijel Kishan -
Dec 7, 2012

A Level Global Investors LP co-
founder and an SAC Capital Advisors LP fund manager were ruled
to be co-conspirators in a scheme to swap illegal stock tips,
clearing the way for prosecutors to introduce their e-mails at
the insider-trading trial of two other men.

U.S. District Judge Richard Sullivan in Manhattan said
yesterday that e-mails and instant messages involving David Ganek of Level Global and SAC Capital’s Michael Steinberg
sufficiently showed that they may have known information they
used for trades came from insiders.

That means the communications can be shown to the jury at
the criminal trial of Anthony Chiasson, who co-founded Level
Global with Ganek, and Todd Newman, a former portfolio manager
at Diamondback Capital Management LLC. Neither Ganek nor
Steinberg has been charged with a crime. Lawyers for Chiasson
and Newman had asked the judge to exclude the messages.

“It seems to me that the evidence against Mr. Ganek is
largely circumstantial,” Sullivan said yesterday. “But I do
think the rest of the facts support that Mr. Ganek” may have
been aware of the source of his information, the judge said.

He drew a similar conclusion about the Steinberg
communications.

‘He Understands’

“The e-mails that were relayed to Steinberg do indicate to
me that he understands the source of the information that he’s
getting and he’s trading on it,” the judge said. “All of that
indicates this is inside information from the company that’s not
available anywhere else, so I’m going to allow it.”

Prosecutors allege that Newman and Chiasson earned more
than $67 million by trading on inside information in Dell Inc. (DELL)
and Nvidia Corp. (NVDA) that was provided by analysts who worked for
them. Both have pleaded not guilty to securities fraud and
conspiracy.

Jesse Tortora, a former analyst who worked for Newman, and
Spyridon “Sam” Adondakis, who once worked as an analyst for
Chiasson, testified they were part of a group of friends who
swapped nonpublic information they obtained from insiders at
technology companies. They said they then passed on that
information to their portfolio managers who traded on the
illegal tips.

Tortora and Adondakis have pleaded guilty and are
cooperating with the U.S. They are among six people who have
pleaded guilty to participating in the scheme.

Passing Tips

Prosecutors argued that Tortora, Adondakis and Jon Horvath,
a former analyst for Steinberg, were part of a group of friends
who obtained inside information from Dell and Nvidia employees.
Adondakis testified that he passed his tips to Chiasson, while
Tortora said he gave his information to Newman.

Steinberg, 40, who was put on leave in September after it
emerged that prosecutors identified him in court papers as an
unindicted co-conspirator in the case, has worked at Steven A.
Cohen’s SAC Capital for 15 years, the longest tenure of the six
people who have been tied to the insider-trading probe while
employed at the $14 billion hedge fund.

Horvath, who was set to go to trial with Newman and
Chiasson, pleaded guilty Sept. 28 to securities fraud and
conspiracy, telling Sullivan he passed nonpublic information
about Nvidia to his portfolio manager. While he is cooperating
with the U.S., he didn’t name Steinberg during his guilty plea
or testify at the trial of Newman and Chiasson.

Jonathan Gasthalter, a spokesman for Stamford, Connecticut-
based SAC, and Barry Berke, a lawyer for Steinberg, declined to
comment on yesterday’s ruling.

SAC Capital

Ganek started Level Global in 2003 with Chiasson, an
analyst he met at SAC Capital. He’s a New York native whose
father, Howard Ganek, was a partner at money-management firm
Neuberger Berman and a well-known philanthropist.

“This was a tactical skirmish between the defense and
prosecution over the submission of evidence in a case that I’m
not a party to,” David Ganek said in a statement. “The key
government witness, a former employee who I fired for violating
our policies, testified multiple times that I didn’t know he was
trafficking in insider information. The government’s decision
not to bring any charges against me vindicates my position.”

Ganek’s attorney, John Carroll, called the ruling “one-
sided,” as his client isn’t a party to the case.

“Both the U.S. attorney and the SEC have been
investigating this case for two years and neither has found
reason to charge my client,” Carroll said in a phone interview.

Apocalypse 22

Ganek is currently investing his own money through his
firm, Apocalypse 22 LLC in New York, which has about half a
dozen employees, according to his spokesman, Davidson Goldin.

Chiasson’s lawyer, Greg Morvillo, argued yesterday that
prosecutors failed to prove Ganek was a knowing member of the
conspiracy because Adondakis, a key government witness,
testified that he never told Ganek the source of his
information.

The judge cited an e-mail in which Chiasson informed Ganek
about a “check” Adondakis had sent him.

“Ganek is expressing awareness of Adondakis’s Dell
contact,” Sullivan said, referring to the exchange.
“Statements made by Ganek and his conversations during this
time do suggest that he understands Adondakis is not just any
analyst crunching numbers.”

Steve Fishbein, a lawyer for Newman, said there was no
evidence before the jury showing Steinberg was a knowing member
of the insider-trading scheme or knew the information he was
receiving from Horvath had been illegally obtained.

‘Down Low’

Sullivan read aloud an e-mail from Horvath to Steinberg
that mentions “JT,” who prosecutors say is Jesse Tortora.

“P.S. Keep the Dell stuff, especially on the down low,”
Horvath said in the e-mail, “because JT asked me specifically
to be extra sensitive with this information.”

Assistant U.S. Attorney Antonia Apps said in court
yesterday that Steinberg took a short position in Dell stock,
betting that it would drop, “in a matter of minutes” after
receiving Horvath’s message.

“Why would you need to keep this on the ‘down low’ if this
stuff is from investor relations?” Sullivan asked. The judge
has instructed jurors in the Newman and Chiasson trial to return
to court on Dec. 10.

The case is U.S. v. Newman, 12-00121, U.S. District Court,
Southern District of New York (Manhattan).